Shrinking Oat Stocks May Add To Rising Food Costs

North American oat stocks look to fall to a near-record low next year, tightening milling supplies used in breakfast cereals such as Cheerios even as food companies struggle to contain input costs.

Relatively high prices of commodities including corn, sugar and cocoa have for the past year left food companies facing the dilemma of whether to absorb the costs or pass them to consumers.

The outlook for thin oat supplies next year and the predictable bounce in prices, however, is due to how relatively cheap the grain is currently.

Oat prices have tumbled about 18 per cent this year and look to strain supplies in two ways.

Their low cost may lift demand from the U.S. horse-feeding industry that is already eager to avoid paying a hefty premium for corn, another feed grain, said oat industry analyst Randy Strychar of Oatinsight.com.

Oats have also lost price ground to canola and wheat and may fall out of favour with farmers deciding in early 2012 what they will plant, he said.

Canada is by far the world s biggest oat exporter, shipping nearly two million tonnes annually, and supplies U.S. millers such as General Mills, Quaker Oats and Ralcorp to make cereals, oatmeal and granola bars.

Millers have covered their supply needs through 2011, but next year looks worrisome, said Terry Tyson, grain procurement manager for Grain Millers Inc.

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